Effective corporate governance : experimental evidence on international auditors'judgments and the contribution of financial accounting education

1 Summary This dissertation deals with two major aspects of corporate governance that grew in importance during the last years: the internal audit function and financial accounting education. In three essays, I contribute to research on these topics which are embedded in the broader corporate governance literature. The first two essays consist of experimental investigations of internal auditors' judgments. They deal with two research issues for which accounting research lacks evidence: The effectiveness of internal controls and the potentially conflicting role of the internal audit function between management and the audit committee. The findings of the first two essays contribute to the literature on internal auditors' judgment and the role of the internal audit function as a major cornerstone of corporate governance. The third essay theoretically examines a broader issue but also relates to the overall research question of this dissertation: What contributes to effective corporate governance? This last essay takes the perspective that the root for quality corporate governance is appropriate financial accounting education. r develop a public interest approach to accounting education that contributes to the literature on adequate accounting education with respect to corporate governance and accounting harmonization. The increasing importance of both the internal audit function and accounting education for corporate governance can be explained by the same recent fundamental changes that still affect accounting research and practice. First, the Sarbanes-Oxley Act of 2002 (SOX, 2002) and the 8th EU Directive (EU, 2006) have led to a bigger role for the internal audit function in corporate governance. Their implications regarding the implementation of audit committees and their oversight over internal controls are extensive. As a consequence, the internal audit function has become increasingly important for corporate governance and serves a new master (i.e. the audit committee) within the company in addition to management. Second, the SOX (2002) and the 8th EU Directive introduced additional internal control mechanisms that are expected to contribute to the reliability of financial information. As a consequence, the internal audit function is expected to contribute to a greater extent to the reliability of financial statements. Therefore, effective internal control mechanisms that strengthen objective judgments and independence become important. This is especially true when external- auditors rely on the work of internal auditors in the context of the International Standard on Auditing (ISA) 610 and the equivalent US Statement on Auditing Standards (SAS) 65 (see IFAC, 2009 and AICPA, 1990). Third, the harmonization of international reporting standards is increasingly promoted by means of a principles-based approach. It is the leading approach since a study of the SEC (2003) that was required by the SOX (2002) in section 108(d) was in favor of this approach. As a result, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) commit themselves to the development of compatible accounting standards based on a principles-based approach. Moreover, since the Norwalk Agreement of 2002, the two standard setters have developed exposure drafts for a common conceptual framework that will be the basis for accounting harmonization. The new .framework will be in favor of fair value measurement and accounting for real-world economic phenomena. These changes in terms of standard setting lead to a trend towards more professional judgment in the accounting process. They affect internal and external auditors, accountants, and managers in general. As a consequence, a new competency set for preparers and users of financial statements is required. The basil for this new competency set is adequate accounting education (Schipper, 2003). These three issues which affect corporate governance are the initial point of this dissertation and constitute its motivation. Two broad questions motivated a scientific examination in three essays: 1) What are major aspects to be examined regarding the new role of the internal audit function? 2) How should major changes in standard setting affect financial accounting education? The first question became apparent due to two published literature reviews by Gramling et al. (2004) and Cohen, Krishnamoorthy & Wright (2004). These studies raise various questions for future research that are still relevant and which motivate the first two essays of my dissertation. In the first essay, I focus on the role of the internal audit function as one cornerstone of corporate governance and its potentially conflicting role of serving both management and the audit committee (IIA, 2003). In an experimental study, I provide evidence on the challenges for internal auditors in their role as servant for two masters -the audit committee and management -and how this influences internal auditors' judgment (Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004). I ask if there is an expectation gap between what internal auditors should provide for corporate governance in theory compared to what internal auditors are able to provide in practice. In particular, I focus on the effect of serving two masters on the internal auditor's independence. I argue that independence is hardly achievable if the internal audit function serves two masters with conflicting priorities. The second essay provides evidence on the effectiveness of accountability as an internal control mechanism. In general, internal control mechanisms based on accountability were enforced by the SOX (2002) and the 8th EU Directive. Subsequently, many companies introduced sub-certification processes that should contribute to an objective judgment process. Thus, these mechanisms are important to strengthen the reliability of financial statements. Based on a need for evidence on the effectiveness of internal control mechanisms (Brennan & Solomon, 2008; Gramling et al. 2004; Cohen, Krishnamoorthy & Wright, 2004; Solomon & Trotman, 2003), I designed an experiment to examine the joint effect of accountability and obedience pressure in an internal audit setting. I argue that obedience pressure potentially can lead to a negative influence on accountants' objectivity (e.g. DeZoort & Lord, 1997) whereas accountability can mitigate this negative effect. My second main research question - How should major changes in standard setting affect financial accounting education? - is investigated in the third essay. It is motivated by the observation during my PhD that many conferences deal with the topic of accounting education but very little is published about what needs to be done. Moreover, the Endings in the first two essays of this thesis and their literature review suggest that financial accounting education can contribute significantly to quality corporate governance as argued elsewhere (Schipper, 2003; Boyce, 2004; Ghoshal, 2005). In the third essay of this thesis, I therefore focus on approaches to financial accounting education that account for the changes in standard setting and also contribute to corporate governance and accounting harmonization. I argue that the competency set that is required in practice changes due to major changes in standard setting. As the major contribution of the third article, I develop a public interest approach for financial accounting education. The major findings of this dissertation can be summarized as follows. The first essay provides evidence to an important research question raised by Gramling et al. (2004, p. 240): "If the audit committee and management have different visions for the corporate governance role of the IAF, which vision will dominate?" According to the results of the first essay, internal auditors do follow the priorities of either management or the audit committee based on the guidance provided by the Chief Audit executive. The study's results question whether the independence of the internal audit function is actually achievable. My findings contribute to research on internal auditors' judgment and the internal audit function's independence in the broader frame of corporate governance. The results are also important for practice because independence is a major justification for a positive contribution of the internal audit function to corporate governance. The major findings of the second essay indicate that the duty to sign work results - a means of holding people accountable -mitigates the negative effect of obedience pressure on reliability. Hence, I found evidence that control .mechanisms relying on certifications may enhance the reliability of financial information. These findings contribute to the literature on the effectiveness of internal control mechanisms. They are also important in the light of sub-certification processes that resulted from the Sarbanes-Oxley Act and the 8th EU Directive. The third essay contributes to the literature by developing a measurement framework that accounts for the consequences of major trends in standard setting. Moreovér, it shows how these trends affect the required .competency set of people dealing with accounting issues. Based on this work, my main contribution is the development of a public interest approach for the design of adequate financial accounting curricula. 2 Serving two masters: Experimental evidence on the independence of internal auditors Abstract Twenty nine internal auditors participated in a study that examines the independence of internal auditors in their potentially competing roles of serving two masters: the audit committee and management. Our main hypothesis suggests that internal auditors' independence is not achievable in an institutional setting in which internal auditors are accountable to two different parties with potentially differing priorities. We test our hypothesis in an experiment in which the treatment consisted of two different instructions of the Chief audit executive; one stressing the priority of management (cost reduction) and one stressing the priority of the audit committee (effectiveness). Internal auditors had to evaluate internal controls and their inherent costs of different processes which varied in their degree of task complexity. Our main results indicate that internal auditors' evaluation of the processes is significantly different when task complexity is high. Our findings suggest that internal auditors do follow the priorities of either management or the audit committee depending on the instructions of a superior internal auditor. The study's results question whether the independence of the internal audit function is actually achievable. With our findings, we contribute to research on internal auditors' judgment and the internal audit function's independence in the frame of corporate governance.

Study on Accuracy of Judgments by Chinese Fingerprint Examiners

The interpretation of fingerprint evidence depends on the judgments of fingerprint examiners. This study assessed the accuracy of different judgments made by fingerprint examiners following the Analysis, Comparison, and Evaluation (ACE) process. Each examiner was given five marks for analysis, comparison, and evaluation. We compared the experts' judgments against the ground truth and used an annotation platform to evaluate how Chinese fingerprint examiners document their comparisons during the identification process. The results showed that different examiners demonstrated different accuracy of judgments and different mechanisms to reach them.

"A Hard Battle to Fight": Natural Theology and the Dismal Science, 1820-1850

William Whewell's and Richard Jones's criticism of Jeremy Bentham's and David Ricardo's "dismal" views on the relation of theory and evidence in political economy was motivated by the former's views on the structuring role of natural theology for questions of method and evidence in the sciences, including political economy. In comparison, natural theology was for Richard Whately as structuring on these issues as it was for the Cambridge men. Whately's view on natural theology, however, conformed with the Ricardian predilection for theory over facts. The differences between the Cambridge men and Whately became manifest after (or better: during) the publication of Jones's book on rent in 1831 and led to a somewhat acerbic exchange of views on the role of definitions in science and the use of history for establishing scientific evidence. As far as political economy was concerned, Whately's stance carried the day in Victorian England.

Issuant views of hell in contemporary Anglo-American theology

This problem of hell is a specific form of the problem of evil that can be expressed in terms of a set of putatively incompatible statements: 1. An omnipotent God could create a world in which all moral agents freely choose life with God. 2. An omnibenevolent God would not create a world with the foreknowledge that some (perhaps a significant proportion) of God’s creatures would end up in hell. 3. An omniscient God would know which people will end up in hell. 4. Some people will end up forever in hell. Since the late twentieth century, a number of British and North American philosophical theologians, inspired by C.S. Lewis, have developed a new approach to answering the problem of hell. Very little work has been done to systematize this category of perspectives on the duration, quality, purpose and finality of hell. Indeed, there is no consensus among scholars as to what such an approach should be called. In this work, however, I call this perspective issuantism. Starting from the works of a wide range of issuantist scholars, I distill what I believe to be the essence of issuantist perspectives on hell: hell is a state that does not result in universal salvation and is characterized by the insistance that both heaven and hell must issue from the love of God, an affirmation of libertarian human freedom and a rejection of retributive interpretations of hell. These sine qua non characteristics form what I have labeled basic issuantism. I proceed to show that basic issuantism by itself does not provide an adequate answer to the problem of hell. The issuantist scholars themselves, however, recognize this weakness and add a wide range of possible supplements to their basic issuantism. Some of these supplemented versions of issuantism succeed in presenting reasonable answers to the problem of hell. One of the key reasons for the development of issuantist views of hell is a perceived failure on the part of conditionalists, universalists and defenders of hell as eternal conscious torment to give adequate answers to the problem of hell. It is my conclusion, however, that with the addition of some of the same supplements, versions of conditionalism and hell as eternal conscious torment can be advanced that succeed just as well in presenting answers to the problem of hell as those advanced by issuantists, thus rendering some of the issuantist critique of non-issuantist perspectives on hell unfounded.

Cognition in Seemingly Riskless Choices and Judgments.

We instillate rational cognition and learning in seemingly riskless choices and judgments. Preferences and possibilities are given in a stochastic sense and based on revisable expectations. the theory predicts experimental preference reversals and passes a sharp econometric test of the status quo bias drawn from a field study.

The role of the Ruah YHWH in creative transformation : a process theology perspective applied to Judges 14

La Ruah YHWH joue un rôle important dans la transformation créative de l’univers et des entités actuelles; cependant, une réflexion concernant les modalités de ce rôle reste à développer. La théologie processuelle offre une plateforme à partir de laquelle sont examinées diverses facettes des rôles que peut jouer la Ruah YHWH dans un monde où le chaos semble dominer. L’objectif de ce mémoire est justement d’explorer la Ruah YHWH dans son rôle de transformation créative au service, ultimement de l’ordre, de la paix et de l’harmonie dans le monde, les communautés, la vie des entités actuelles, etc. Le Chapitre 1 passe en revue des notions clés de la théologie processuelle. Le concept des “entités actuelles” est d’abord défini. Sont ensuite examinées les différentes phases du devenir d’une entité actuelle. Finalement, les concepts de “créativité” et de “transformation”, dans une perspective de la Ruah YHWH font l’objet d’observations attentives avant d’aborder « trois natures » de Dieu, à savoir primordiale, conséquente, et superjective. Le Chapitre 2 s’intéresse à la péricope centrale de ce mémoire : Juges 13:24-14:20. Le découpage de la structure de cette péricope est basé sur des critères de critique textuelle et d’analyse syntaxique. La première analyse s’attarde aux difficultés que le texte hébreu présente, alors que la deuxième met l’accent sur l’organisation structurelle des propositions grammaticales des versets. Les deux analyses me permettent ensuite de proposer une traduction du péricope. Le Chapitre 3 se veut une application de ce qui a été élaboré au Chapitre 1 sur la péricope analysée au Chapitre 2. Ce troisième chapitre permet de mettre en pratique une approche processuelle originale développée par Robert David dans son livre Déli_l’ ÉCRITURE. Dans la foulée des chapitres qui le précèdent, le Chapitre 4 propose quelques principes herméneutiques contemporains pouvant éclairer le rôle de la Ruah YHWH dans l’avancée créative du monde : vie, amour, et paix.

Sofia Gubaidulina's violin concerto Offertorium : theology and music in dialogue

L’objectif de ce mémoire est de comprendre comment une certaine vision du monde, basée sur des croyances théologiques, a contribué à la composition du concerto pour violon Offertorium de Sofia Gubaïdulina. C’est par le biais de cette œuvre qu’est explorée l’idée du dialogue musicothéologique, en proposant des façons par lesquelles la pièce musicale en question peut servir de porteuse ou d’interprète d’une pensée théologique. Afin d’appuyer cette idée, la démarche intertextuelle employée par Heidi Epstein est utilisée. Cette méthode permet de faciliter non seulement le travail interdisciplinaire, mais aussi la lecture théologique de l’œuvre musicale. Le premier chapitre explore les sources, les questions et la problématique qui entoure le dialogue musicothéologique. La conclusion tirée est que l’étude d’Offertorium nécessite une approche équilibrée. Nous entendons par cela, une approche qui prend en ligne de compte la réflexion théologique autant que la recherche musicologique tout en respectant les contributions théologiques que l’œuvre musicale peut apporter en soi. Dans le deuxième chapitre, une analyse thématique d’Offertorium a été tentée ainsi qu’une étude du discours théologique et spirituel de la compositrice. Il a été conclu que l’arrière-plan russe orthodoxe de Gubaidulina a beaucoup influencé sa vision du monde et son approche artistique. Le concerto est porteur d’idées et de symboles liturgiques ou théologiques de l’Orthodoxie dans sa structure et dans sa construction thématique. Le troisième chapitre explore les parallèles entre la pensée de Gubaidulina et les écritures de plusieurs théologiens russes orthodoxes du 20e siècle. La conclusion de ce chapitre démontre que, même s’il est improbable que la compositrice connaisse bien ces auteurs, sa compréhension théologique et spirituelle sort du climat religieux de l’Église Orthodoxe. Cette idée explique les complémentarités et les similarités entre son discours, son œuvre et les propos des théologiens discutés. Le quatrième chapitre évalue la validité d’Offertorium comme moyen d’expression théologique ainsi que de générateur de réflexion théologique. La conclusion de la recherche est qu’Offertorium peut bel et bien être un espace théologique. Ce qui veut dire que des idées théologiques peuvent être communiquées par le biais de l’expérience sonore que ce soit par la mélodie ou l’ambiance générale. Également, cela implique que la musique devient un partenaire égal, quoique différent des méthodes de réflexion traditionnelles au sein de la conversation théologique.

Increasing scepticism toward potential liars: effects of existential threat on veracity judgments and the moderating role of honesty norm activation

With the present research, we investigated effects of existential threat on veracity judgments. According to several meta-analyses, people judge potentially deceptive messages of other people as true rather than as false (so-called truth bias). This judgmental bias has been shown to depend on how people weigh the error of judging a true message as a lie (error 1) and the error of judging a lie as a true message (error 2). The weight of these errors has been further shown to be affected by situational variables. Given that research on terror management theory has found evidence that mortality salience (MS) increases the sensitivity toward the compliance of cultural norms, especially when they are of focal attention, we assumed that when the honesty norm is activated, MS affects judgmental error weighing and, consequently, judgmental biases. Specifically, activating the norm of honesty should decrease the weight of error 1 (the error of judging a true message as a lie) and increase the weight of error 2 (the error of judging a lie as a true message) when mortality is salient. In a first study, we found initial evidence for this assumption. Furthermore, the change in error weighing should reduce the truth bias, automatically resulting in better detection accuracy of actual lies and worse accuracy of actual true statements. In two further studies, we manipulated MS and honesty norm activation before participants judged several videos containing actual truths or lies. Results revealed evidence for our prediction. Moreover, in Study 3, the truth bias was increased after MS when group solidarity was previously emphasized.

Factors involved in making post-performance judgments in mathematics problem-solving

Resumen tomado de la publicaci??n

A comparison of physical measurements of pure-tones, third-octave bands of noise and third-octave bands of speech to subjective judgments of audibility threshold, MCL and UCL for three normally hearing listeners

This study investigates the relation between physical measurements of pure-tones, third-octave bands of noise and third-octave bands of speech and subjective judgments of auditory threshold, most-comfortable listening level (MCL) and uncomfortable-listening level (UCL) for three normally hearing listeners.

Loudness judgments in normal and hearing impaired listeners

This paper studies the use of a rank order scale to achieve a goal of normal loudness perception for a hearing-impaired person. The study compares loudness judgments in normal and hearing-impaired listeners.